Executive Contract Negotiations for Life Sciences Executives

By Robert A. Adelson

The Life Sciences industry is characterized by rapid innovation, significant regulatory hurdles, and intense competition. Its demand for talented senior executives is high. If you are a Life Sciences executive or aspiring to become one, your own continuing and growing knowledge, experience, and contacts in this field are certainly most important. However, it is also valuable for you to have an understanding of executive contract negotiations in the industry. This is true whether you are working in biotechnology, pharmaceuticals, medical device, bioinformatics, or another area of life sciences and whether you are now or aspire to a C-level or Senior executive role in technology, medical, regulatory, reimbursement, marketing, finance, legal or other areas in a Life Sciences company. This article is intended to offer an introduction to executive contract terms likely to be relevant to your negotiations and terms to seek in those negotiations. 

🤝 Signing Bonus

When you join a new company, you should seek a signing bonus, which is an immediate financial incentive for you to make the move. The bonus is normally either in cash or equity.  It seeks to make you whole for things you are giving up in your current company – for example, loss of bonus, vesting equity, or other long-term incentives.  These are often called “golden handcuffs.” So, your signing bonus is the “golden key” to unlock those golden handcuffs. 

If you are being recruited from a good and secure job, the signing bonus is also a way for the new employer to encourage you to take a risk moving to a new executive suite, where you must once again prove yourself. 

Employers will normally try to couple any signing bonus with “clawback” terms.  These terms obligate you to repay the bonus if you leave the company in too short a time.  Like the signing bonus itself, the clawback terms are also subject to negotiation.  Your goal is to ensure that if the company terminates you or does not live up to its bargain, there is no repayment obligation.

🤝 Cash Compensation, Equity Terms, and Taxation 

Your executive compensation package should include a cash component.  This should consist of a market salary and annual bonuses tied to the performance of the company, your own performance, or both. For Life Sciences executives, performance bonuses may be tied to milestones achieved by the company toward exit. Negotiate for clear, achievable goals to ensure that the bonus will be paid when the milestone is achieved. 

Equity is potentially the biggest component of your compensation package.  Here, you do want to pay attention to obtaining a meaningful equity position if possible. Your Life Science company may not succeed, in which case the equity may be negligible.  However, if your company does succeed and achieves a successful event, acquisition, or IPO at a significant growth multiple, you want your contract to have the necessary equity terms to ensure that you don’t miss out on your fair share of the gains. 

The optimal terms and structure for a Life Science CEO or senior executive’s equity vary depending on the company’s history, stage, cap table, as well as the objectives of the company and your own. The amount of equity should reflect your position, experience, and skills. The structuring of your equity, whether it be restricted stock, RSUs, stock options, or SAFE documents, should be tailored to the specific deal and your personal taxation considerations. Each type has different implications for control, liquidity, and tax treatment. 

The tax treatment of your equity package can vary considerably, with potentially significant financial consequences down the road.  So, it is wise that your executive employment attorney has strong tax knowledge of the choices among the different equity structures open to you. Refer to my previous article, Executive Stock Options, Restricted Shares, and Restricted Stock Units – What’s Best for You, for more information.

Vesting for your equity can be performance or time-based. You should seek clarity on performance-based vesting.  Acceleration for time-based vesting upon a change of control or termination without cause are terms for you to seek for protection if the company is acquired or you are terminated. Other terms that should be raised in equity negotiations include anti-dilution, refresh grants, information rights, redemption, and cash-out protections.

🤝 Relocation and Other Executive Expenses

Life Science CEOs and executives are in especially high demand in areas like Boston, San Francisco, Southern California, Chicago, Seattle, New York / Philadelphia, NC Research Triangle, and Maryland / DC. Thus, you will likely receive offers that require relocation. 

Often, an executive uproots their family, only to find that the job isn’t the right fit, and the family finds themselves left in a location they didn’t want to be in. To avoid this, you should seek temporary relocation terms that allow for at least six months, or even up to 18 months, of commuting. This gives you time to assess the job and allows the family to adjust and find the right time, such as the end of the school year, for a permanent move. Once a permanent move is agreed upon, you should seek for the company to cover all related expenses, including a tax gross-up if necessary, so that the full cost of the relocation is borne by the company.

In the alternative, many contracts will provide for relocation at a future time set, but in the meantime provide for you to work remotely.  Here is it wise to include those terms in your contact, as well as any further support needed to work remotely. 

You can also negotiate for reimbursement of costs incurred in keeping you current in your field, such as continuing education, professional licenses, trade association memberships, conferences, and business class travel.

🤝 Severance Terms

Life Sciences companies can be volatile, so as an executive, it’s essential to negotiate severance terms that safeguard your interests in the event of a separation. Pay attention to:

• Duration and Amount: Aim for an executive severance package that covers at least twelve months of your base salary, including benefits continuation. 
• Triggering Events: Clearly define what constitutes “termination for cause,” “termination for good reason,” and constructive termination, and include provisions for “good reason” resignations.
• Pro-rated Bonuses and Equity Vesting: Negotiate for pro-rated bonuses and equity vesting when you are terminated without cause or resign for good reason. Include a clawback provision that allows you to get a share of the cash benefit in the event of an acquisition or IPO not long after your departure. Additionally, your contract should protect you in case these payments become subject to the golden parachute tax provisions.
• Non-Disparagement Clause: To protect your reputation and future career opportunities, secure a mutual non-disparagement clause, which ensures that neither you nor the company would make negative statements about each other after your departure.
• Non-Compete and Non-Solicitation Clauses: Ensure that any restrictive covenants are reasonable in scope and duration, allowing you to pursue future career opportunities without undue hardship.

This article aims to empower Life Sciences executives with the knowledge to negotiate favorable employment terms. By focusing on these key areas, you will secure a contract that reflects your value, aligns with your professional goals, and positions you for success in your new role. To achieve the best results in executive contract negotiations, consult an experienced executive employment attorney.